Renren Inc. (RENN) looks sweet dude. They have over $900 million in cash with $0 debt! They’ve had awesome sales growth every year since they started in 2008. Some are saying the stock is fairly valued at $7.40. It currently trades at $3.04, just a hair above its book value of $2.93 per share.
In this episode I talk about how a huge multi-billion dollar publishing corporation targeted little old me and an earlier video of mine and how this could be the start of a troubling trend of Internet censorship. I also talk about how Jason Bond hit an 8% winner in OCZ today in just 20 minutes. Finally, I talk about why I bought RENN in my personal trading account today and how I’m down big and this stock could become my Vietnam.
Heckmann (HEK) seems to be well positioned to benefit from the increase in drilling and fracking within the oil and natural gas industry. It will also benefit from increased environmental regulation likely to come from the EPA regarding the recycling and disposal of fracking fluids.
Company Description
Heckmann Corporation delivers, collects, and provides treatment and recycling of liquid and solid products used in oil and gas drilling. They also provide waste recycling for used motor oil, spent antifreeze, used oil filters, and more.
Thesis & Catalyst For Heckmann Corporation
The buzz in the energy sector continues to be the huge shift in U.S. oil supplies. The U.S. could become the world’s largest oil producing country within the next 7 years according to the International Energy Agency (IEA). The U.S. may become what the Middle East is today thanks to what is known in the industry as fracking. With jobs in short supply and the economy growing much too slow, it is unlikely that the government will ban fracking and disrupt the huge job growth forecast in the energy sector.
Drilling and fracking for natural gas and oil is ecologically damaging. It also requires a lot of water. Shas Dey writes, "For every one of the approximately 11,400 new shale wells drilled per year in the US, nearly 6.1 million gallons of water is required. That comes out to 70 billion gallons of water needed per year." (Source: http://beta.fool.com/edliston/2013/04/18/heckmann-to-benefit-from-industry-growth-and-acqui/31742/) Drilling and fracking also produces toxic water and damages soil layers. It is likely that measured environmental regulation will be coming from the EPA regarding fracking. Not to worry, Heckmann has the solution.
Heckmann will not only help deliver water to the fracking site, it will ship away the toxic water for recycling at one of its plants. Heckmann offers a solution for the entire process and gets paid not only for bringing in fresh water but also for hauling out the toxic waste water.
Any increased environmental regulation that is likely to come from the EPA will benefit companies like Heckmann .
Acquisitions In 2012 Lead To Huge Sales Growth In 2013 and Beyond
In 2012, Heckmann purchased Thermo Fluids and Power Fuels. Both these purchases allow Heckmann to expand and improve on their environmental services to the oil and natural gas industry.
Thermo Fluids is an environmental services company that focuses on recycling used motor oil. Heckmann bought it for $425 million in cash.
Power Fuels is an environmental services company that transports, treats, recycles, and disposes of fluids used in drilling and fracking. Heckmann purchased it for $125 million in cash and 95 million shares of its common stock.
Heckmann will change its name to Nuverra and will begin trading under the ticker symbol NES on May 13, 2013.
Valuation
Heckmann has a whopping 30% of the float short as of April 15, 2013. The heavy short selling of HEK since September of 2012 has pushed the stock down from $5 to just $3.70 as of May 3, 2013.
This has created an oversold opportunity in the stock. The forward P/E is 20 and the stock trades at a P/B of just 1.10 or just $0.34 above book value.
The sales growth for Heckmann has been incredible. The EPS in 2012 grew 2022.34% year over year. In 2011, revenue was $156 million for the year. In 2012, revenue was $351 million! That’s a revenue growth of nearly 125% year over year! Heckmann expects revenue to double again in 2013 with a target between $750 million and $825 million!
Heckmann seems to be well positioned to benefit from the increase in drilling and fracking within the oil and natural gas industry. They also will benefit from increased environmental regulation likely to come from the EPA regarding the recycling and disposal of fracking fluids.
Heckmann is reporting earnings on May 8th 2013 and if they meet expectations or beat, we could see a short squeeze in the stock which could carry it up to the $4.50 area.
Variant View
As the result of its acquisitions, Heckmann has positioned itself nicely in years to come; however, this market positioning has not come without a hefty price.
Heckmann has total cash of just $16.21 million with total debt of $566 million. There is no guarantee that Heckmann will be able to service this huge debt.
Heckmann increased its outstanding shares from 124.85 million in 2011 to 251.80 million in 2012. A whopping 95 million shares in 2012 were used to finance the purchase of Power Fuels. Investors hate share dilution and short sellers moved in as a result. With 30% of the float short, there is no guarantee that short sellers will start to cover their positions anytime soon.
Although it seems unlikely that the U.S. government will move to ban fracking, it still is a possibility. There are many protests in towns and cities across the country regarding the controversial process of fracking. Should the government ban fracking, Heckmann would likely have to file for bankruptcy.
PMC-Sierra, Inc. (PMCS) plunge of 9% on a Q1 earnings miss has created a compelling valuation and swing trade long setup.
Company Description
PMC-Sierra, Inc. makes semiconductor networking solutions. PMC is a provider of mobile backhaul network processors. The company sells semiconductor devices in three markets: storage, optical, and mobile networks.
Thesis & Catalyst For PMC – Sierra, Inc.
PMC-Sierra plunged over 9% on Friday pushing its RSI down to 26.21 making it an oversold candidate.
It is usually a bad idea to try and “catch a falling knife”. With the huge red candle and sell off on Friday, it is a bad idea to jump in front of the selling because it might continue for awhile longer. Instead, we want to wait for a “candle over candle” or curl to form on the chart before taking an entry. The idea is to look for signs of institutional traders bottom feeding in the stock before going long.
We do not yet have a bounce or curl on the chart and so we can’t yet set a swing long price target.
PMC-Sierra stock dropped because of an earnings miss reported on Thursday, April 25th 2013. Analysts had forecast earnings of $0.08 per share for Q1 2013. The company missed by $0.01 reporting earnings of $0.07 per share. In my opinion, the market over reacted to this earnings miss.
The company beat last year’s Q1 results by a whopping 16.67%! In fact, PMC-Sierra’s book-to-bill ratio was greater than 1 for the second consecutive quarter, indicating improving demand.
Gregory Lang, Chief Executive Officer, President and Director of PMC-Sierra said in Thursday’s earnings call, “The environment continues to be challenging due to economic softness and weakness in carrier spending. However, we’re encouraged by stronger bookings within the quarter and expect to grow revenues in the second quarter of 2013.”
As swing traders, one of our favorite setups is when a company reports an earnings miss, but the longer term outlook stays intact. This kind of setup often results in market over reactions to the downside and sweet oversold entries for us.
Once again, the drop in revenues from PMC-Sierra’s mobile segment appears to be a temporary issue as mobile data traffic is expected to increase 13-fold between 2012 and 2017.
Valuation
PMC-Sierra has a hot forward P/E ratio of 11.18. Sales were a whopping $530 million in 2012.
I like companies with a lot of cash and little debt. PMC-Sierra has over $181 million in cash with no debt and a sizzling hot Debt/Equity ratio of just 0.03! This means that even though PMC-Sierra stumbled in Q1 2013, they are making money and lots of it. It means they can pay the bills without having to use share offerings or borrow money. It also means they can acquire another business, expand the product line, spend more on research and development, and a host of other things that a large amount of cash and no debt allow. It can also make them an acquisition target like we saw in my stock pick PWER from several weeks ago. Just 3 weeks after my article on PWER and how they had a huge amount of cash and no debt, ABB bought the company which sent PWER stock soaring over 50% in a single day!
Variant View
PMC-Sierra’s Q1 earnings miss was mostly the result from its mobile market segment. Carriers could continue to experience weak demand in Q2 and beyond which would continue to weigh on PMC-Sierra’s earnings.
After the huge sell-off on Friday, it may be too early to take a swing long position in this stock. As the old cliche goes, “Don’t try and catch a falling knife.” With the 200 day moving average broke on Friday, this stock could continue to go lower.
Disclosure: I do not hold shares of PMCS at the time of publishing this article but may go long PMCS within the next 72 hours.
What an awesome winning streak we are on folks. I’ve had 4 winning trades in a row. If you add up all the winners and subtract all the losers, I am up 23% for April 2013! The S&P 500 is up just 1% over the same time span.
My re-focus after blowing my trading account up in January is really paying off. What I’m doing differently is that I’m not using a buy high and sell higher strategy. Instead, I’m focused on a buy low and sell higher method. This method involves adding stocks to a watchlist and then stalking them for an oversold entry.
I bought Vantage Drilling (VTG) today in my personal trading account.
Vantage has way too high debt but that’s precisely why it has a P/E ratio of 4.9. This scary high debt has made this stock a bargain with it trading around $0.25 below its book value.
In this episode I talk more about why I bought Vantage Drilling (VTG) today.
I bought SONS in my own personal trading account today on the long lower shadow candle. It’s a risky move because I didn’t wait for a candle over candle pattern. I’m trying to catch a falling knife here but if I time it right, it’ll be a sweet trade.
SONS has crazy cash and almost no debt.
Another stock I like that I might buy within the next 72 hours is ELX. It’s got a beautiful long lower shadow and a sweet RSI.
In this episode, I talk more about both of these stocks and what I like about them. I also talk about the big 56% pop in PWER today that I hope some of you were able to take advantage of.
Baristas (BCCI) is a pink sheet listed stock. They are a drive-thru coffee business with a twist: hot girls barely clothed will serve you your coffee.
I’m not a big fan of this business model. I think Baristas will offend a lot of women who will not trust to send their husbands there to pick up a cup of coffee. I think a lot of church going Christians won’t go to Baristas either. Excluding women and Christians from your customer base is not a business model I’m interested in.
I could be wrong though. When I went to Washington back in 1989 when Starbucks first opened there, I thought it was crazy how people would wait in a drive-thru just for a cup of coffee. When I got home to Fresno California and told everyone here about Washington and “drive-thru” coffee, they also thought it was a stupid concept. Eventually when Starbucks did reach Fresno, it was hugely popular. I couldn’t believe the long line of cars I saw each morning at the local Starbucks. So seriously guys, I’m no expert on coffee. I could totally be wrong about Baristas business model of hot chicks serving hot coffee.
Nevertheless, I bought BCCI in my personal trading account this morning because of the killer chart. In this episode, I talk about why I bought Baristas (BCCI) stock today and how I’m playing this stock.
I bought Emulex Corporation (ELX) today after taking some pretty wicked losses at market open today.
ELX has $211 million in cash and $0 debt. They just acquired Endace, a New Zealand company that was traded on the London stock exchange. Endace does business with: 3 of the top 5 telcos in the US, 5 of the top 10 global telcos, top US and European intelligence agencies, and more.
In this episode, I talk more about why I bought ELX today. I also talk about the brutal market this morning and then I give a shout out to a viewer’s stock.
3D Systems (DDD), the makers of 3D printers, has announced a two for three stock split payable as a 50% dividend. In this episode, I talk about what this means and why the Board of 3D Systems is most likely doing this.
The popular dating site eHarmony told Yahoo Finance today that New Jersey told them to add gay and lesbian dating to their website or else they would no longer be allowed to do business in the New Jersey. I give you my controversial take on this very controversial issue.
Elevator Pitch
